low carbon energy and engineering

estimating energy cost

I’m doing financial comparisons of energy systems on one of our projects. It’s a pretty standard part of our work but this morning the precision of the figures appearing in my spreadsheet strikes me as particularly specious because it doesn’t tell the whole story. Sure, clients need a comparator and you can’t preface every report with a thesis on complexities of the energy market (not that I’m capable) but just the same these results are making me uneasy and here’s a short list of reasons why:

Energy prices don’t follow inflation. Just applying, say, a 6% inflation rate year on year won’t provide an accurate picture of future energy costs. The reality is much more volatile and less predictable.

Renewables don’t carry the same risks as fossil fuel based systems. Future oil and gas supplies are uncertain, adding price risk. On the other hand, energy from non-biomass renewable energy sources is (more or less) constant over time, regardless of political climate, international relations, attack by insurgents, etc. Wind keeps blowing, sun keeps shining, waves keep rolling in.

In the medium term politicians may require the incorporation of some externalities into the cost of fossil fuel and nuclear energy (the cost of cleanup in the case of nuclear for example). With renewables there are fewer externalities and little risk of sudden future price hikes.

Cost figures by technology (p/kWh) are riddled with uncertainty and unspoken assumptions. There’s a good recent entry on Grist on why comparing generation technology by p/kWh is invalid.

But none of this changes the fact that clients need clear, easily digested numbers during the first phases of a project to decide between options. I’ll certainly include more background information in the text of the report, but should I be going about this in another way entirely?

That’s a great example. The RICS people have done simple payback calculations. While this might be useful in a like-for-like comparison between options, it’s nothing like an accurate picture of cost over time. Good for making a dramatic point but not actually useful.